Marijuana board accepts cultivation draft regulations

The Alaska Marijuana Control Board met Sept. 14 in Kotzebue and Sept. 16 in Anchorage to accept the next round of draft regulations, which are to be recommended to the Legislature and approved by Nov. 24. The board focused on marijuana cultivator regulations, one of the four designated marijuana business licenses included in regulations, along with processors, retail stores, and testing facilities.

Three issues dominated discussion both in Kotzebue and in Anchorage: whether cultivator employees can consume cannabis on premises, limited cultivator operations, and product packaging.

Leif Abel, executive director of the Coalition for Responsible Cannabis Legislation, said he was actually encouraged by the topics’ relatively tame nature compared to the more heated security, zoning, and operational discussions for retail marijuana businesses in prior meetings. The fact that they’re arguing over smaller potatoes, he said, shows progress.

“All things considered, it’s good that we’re arguing over some these kind of smaller issues,” he said. “It shows just how far we’ve come since the beginning. There’s more understanding now.”

Samples and packaging

Draft regulations are confusing about packaging requirements, though the intent is clear: all products should leave the store in opaque packaging.

“The intent is that you can’t leave the store with visible product,” said board chair Bruce Schulte, “though I’m not sure how clear we were able to make that point.”

This is similar to Colorado laws, which demand all product leaving shops, whether edible or smokeable, to either be packaged in or placed in opaque and child-resistant bags. Colorado cannabis businesses struggled to find packaging when the requirement was instituted in 2013, but special packaging products are now being made specifically for compliance with regulations.

Industry representative board members argued in favor of clear or partially clear packaging, as cannabis has a visual factor key to successful sales.

“We’re underestimating the aesthetic value of the product,” said Schulte. “It may seem odd, but that could have significant economic value.”

In regulation, the matter is much less clear. Schulte said once the first draft has been approved the board will try to make the regulations clearer and less cumbersome.

As currently written, the regulations apply to cultivator packaging. All product, whether large or small, salable quantities, must be opaque.

Operationally, retail stores could have clear packaging for marijuana in the store, but require a separate opaque package for the final exiting purchase, much like the familiar brown paper bag in liquor stores.

Cultivators are allowed to provide samples to retail stores for in-store display in clear jars with screens over the top.

The original draft regulation specified that cultivators may only provide up to two grams of samples. Board member Brandon Emmett introduced an amendment to change the allowance to 28 grams, or one ounce, with no more than 28 grams of product given as samples per month, in order to accommodate cannabis concentrate manufacturers.

“Two grams isn’t going to do it for someone looking to make extract,” Emmett said.

Schulte argued that he simply couldn’t defend allowing non-commercial gifts of up to one ounce while limiting intracommercial interactions more tightly.

“It offends my sense of perfection that we would give a lesser amount to professional cultivators and more to non-licensees,” Schulte said.

Small growers

As a concession to mom and pop cannabis growers, the board will offer a limited cultivator license, which costs $1,000 rather than the $5,000 for a standard cultivator license.

Several of the smaller growers are concerned with limited cultivator regulations, including size limits and operational requirements.

Limited cultivators can only sell to retail facilities through cannabis brokers, rather than through direct relationships with retailers. Brokers will extract fees and percentages and make the process less profitable, according to Jessica Jansen.

“It’s already an expensive operation,” said Jansen, who is executive director of the Alaska Cannabis Growers Association and co-founder of CannaFarm Co-op. Jansen said she doesn’t understand why the board wouldn’t make limited cultivator brokerage an option, rather than a requirement.

Furthermore, limited cultivators will be held responsible for a broker’s unpaid taxes. Excise taxes on every ounce of cannabis must be paid prior to sale. If brokers don’t pay the taxes, the responsibility falls to the cultivator.

“It’s the secondary liability concept,” explained board executive director Cynthia Franklin. “We can expect that when the tax division comes out, it will beef this up. You can’t profit from a product that hasn’t paid its taxes. It happened with cigarettes. It’s the Al Capone rule.”

Schulte worried the measure would create a barrier for market entry for small growers who would otherwise simply remain in the black market.

“Why wouldn’t the state simply go after the broker in the same way?” asked Schulte. “This might give potential limited cultivators pause.”

The board, however, has no larger number on which to base its regulations.

“You have to remember that this has been a black market operation,” said Schulte. “We don’t exactly have the best statistics when it comes to what the size of the average home grow is.”

Random product testing

All cultivators will be subject to inspection and sampling by board enforcement “from time to time,” which must be done at the cultivator’s expense.

Industry is concerned with that a board director could potentially abuse the “time to time” allowance. Public comments feared that the board director, whether Franklin or a later director, could use random sampling to bankrupt and harass growers out of spite or personal grudge.

“I feel that this board and this director is not hostile to the industry, but that might not always be the case,” said Emmett. “The way this is written, regulation can be used against an unpopular individual.”

Franklin answered that random sampling is used in alcohol without any such behavior, and that administrative law would allow complaints of rogue directors to the board itself. She said industry needs to start trusting the administration the same way the administration will learn to trust the new industry.

“It has been working very well in alcohol for 35 years,” said Franklin. “In 35 years we haven’t seen the scenarios presented in these comments. What really has to change is the industry coming into regulation has to have some baseline faith in the staff.”

Board member Loren Jones said the chance of a hostile director’s random sampling abuse would depend on “the stars aligning.”

“’From time to time’ it creates a situation where if the starts did align, which is more common in politics than in astronomy, then you could have some serious problems,” said Emmett.

Emmett introduced an amendment that would specify only one sampling per quarter, but the amendment failed. Emmett was the only vote in favor.

No growing while high

The board left a possible loophole for onsite marijuana consumption at cultivator operations, which is expressly forbidden in all other licensed cannabis operations.

In Kotzebue, the board had changed draft regulation language to allow a designated spot in marijuana cultivator facilities for employees to consume cannabis. Public comment said the original draft language, which prohibited cannabis consumption within 20 feet of a cultivation facility, frustrates product sampling and discriminates against employees who need medicinal marijuana to function.

In Anchorage, however, the board reversed its Kotzebue decision and reinstated the ban on marijuana consumption within 20 feet of a cultivation facility.

Insurance was the biggest objection to allowing on site cannabis consumption. As per regulation, marijuana businesses must carry insurance. Allowing onsite consumption could make businesses hard to insure, and give a poor public impression regarding marijuana cultivators’ professionalism.

“I believe I approached you about the professionalism of the business of ability of the businesses to consume marijuana on cultivation premises, the difficulty in procuring insurance, the problems it could bring,” said Franklin in Anchorage.

After considering its Kotzebue decision, members of the board seem to have reconsidered their original positions.

“Maybe 20 feet isn’t that far to have to walk, if in fact you’re using it for what you perceive to be a therapeutic benefit,” said board member Mark Springer. “Bars, liquor stores, distilleries don’t have a recreational drinking room. I guess I would not have any opposition to going back.”

Schulte, president of the Alaska Marijuana Industry Association, said he prefers to leave insurance eligibility to business sense rather than regulation, but nonetheless voted in favor of rescinding the Kotzebue allowance.

“I would prefer it be up to the business owner,” said Schulte. He said the board will have the opportunity to revisit regulations later, however, and a potentially problematic issue needs more caution. “I’m inclined to take a more conservative approach now.”

Only Emmet, the vice-chair of the Alaska Marijuana Industry Association, voted against reinstating the onsite consumption ban.

“I still believe if you allow alcohol licenses to sample their product, marijuana licenses should be allowed to do the same thing,” said Emmett.

The cultivator ban on onsite employee product use could be inconsistent with other draft regulation allowances, and complicate retail sampling processes.

Part of the same section allows onsite cannabis testing. In regulation, this means specifically running your product through a battery of state-licensed tests that measure purity and biohazards, not the product’s effect during consumption.

Schulte, however, floated his interpretation on the record that testing could possibly include product effect. This would still ban employee consumption, but could allow for retail stores to sample the product onsite prior to purchase. The matter will depend on later application and interpretation.